Paytm shares in bear grip. Macquarie sees 46% potential upside

The selling in shares of One 97 Communications (Paytm), which was underway since the middle of October, picked up pace recently following Paytm's decision to scale down its small-ticket loans. Macquarie, which has a neutral view on the stock, said the decision to recalibrate the lending portfolio by Paytm was a pre-emptive measure taken in consultation with the partners. In a flash note, the foreign brokerage said that there was no asset quality deterioration in post-paid or the personal loan segment. Macquarie has suggested a share price target of Rs 900 for the Paytm stock, which suggests a 46 per cent potential upside over Monday's intraday price of Rs 617.45.

"For post-paid loans, the management indicated that it’s a risk-averse call based on stress witnessed in certain pockets of the system. While the CoF for NBFC partners will increase on account of higher risk weights for bank funding to NBFCs, for products such as post-paid loans the impact is negligible owing to the short tenor (up to 30 days) of the product," Paytm said.

The management indicated increasing scale in large-ticket personal loans is feasible given certain customers were eligible for higher ticket-size loans earlier as well, but with Paytm’s lending model being restricted to ticket sizes up to Rs 3 lakh, the said customers would take loans from other lenders, Macquarie said.

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"Further, customers also take personal loans through Paytm despite having a primary deposit relationship with other banks. Paytm identifies this as an opportunity in the high-ticket (Rs 3-7 lakh) personal loan market," the brokerage said.

On the payments space, the management expects merchants and customers to remain sticky despite fintechs entering payments and lending space, given the service proposition. In the lending segment, Macquarie said, given the competition, however, Paytm is targeting continued upselling to its high quality customers, for which it has a data advantage.

Paytm shares were up 1.91 per cent in Monday's trade. The stock hit a 52-week high of Rs 998.30 on October 20. Macquarie said higher-than-expected losses in the medium term pose downside risk while continued momentum in financial services business structurally over several years is an upside risk to the Paytm stock.

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